CSEET Video Lectures

CSEET Video Lectures for Nov 2021 – Contract Act – Class 6

CSEET Video Lectures for Nov 2021 - Legal Aptitude - Law related to Contracts - Class 6

CSEET Video Lectures for Nov 2021 – Legal Aptitude – Law related to Contracts – Class 6

Part of Contract Act covered in this Class

FLAWS IN CONTRACT

 Following may be the flaws in a contract:
(i) Incapacity
(ii) Mistake
(iii) Misrepresentation
(iv) Fraud
(v) Undue Influence
(vi) Coercion
(vii) Illegality
(viii) Impossibility 

INCAPACITY
According to Section 10, parties to a contract shall be competent to contract. According to Section 11, every person is competent to contract

  • who is of the age of majority according to the law to which he is subject, and
  • who is of sound mind, and
  • is not disqualified from contracting by any law to which he is subject.

Thus according to Section 11, following persons are not capable of entering into a contract:
(i) minors,
(ii) lunatics, and
(iii) persons disqualified from contracting by any law to which they are subject

Minors
According to the Indian Majority Act, 1875, a minor is a person, male or female, who has not completed the age of 18 years. In case a guardian has been appointed to the minor or where the minor is under the guardianship of the Court of Wards, the person continues to be a minor until he completes his age of 21 years.

Note:

  • In a caseMohiri Bibi v. Dharmodas Ghose, it was held that a minor has no capacity to contract and minor’s contract is absolutely void. Therefore minor cannot be held liable under any contract.
  • But minor can be beneficiary in a contract.
  • If the minor has carried out his part of the contract, then, the Courts have held, that he can proceed against the other party.
  • Minor cannot held liable even under the Doctrine of Estoppel. It means minor cannot be estopped by his words or conduct.
  • If someone supplies necessaries to the minor or to someone else whom the minor is bound to support, minor’s estate can be held liable to pay a reasonable price for necessaries. Even in this case minor shall not be held personally liable.
  • A minor can be an agent, but he cannot be a principal nor can he be a partner. He can, however, be admitted to the benefits of a partnership.
  • Since a minor is never personally liable, he cannot be adjudicated as an insolvent.
  • An agreement by a parent or guardian entered into on behalf of the minor is binding on him provided it is for his benefit or is for legal necessity. An agreement for service, entered into by a father on behalf of his daughter
  • who is a minor, is not enforceable at law.
  • An agreement with a minor is void-ab-initio, such agreement cannot be ratified by the minor on attaining the age of majority.

Agreement by person of unsound mind
For the purposes of making contract, a person is of unsound mind if at the time when he makes the contract, he is incapable of understanding it and of forming rational judgment as to its effect upon his interests.

Any contract with lunatic is void. A person may be considered as of unsound mind if he/she is:

  • suffering from heavy fever
  • drunk
  • under the influence of hypnotism
  • of very old age

Note

  • For necessaries supplied to a lunatic or to any member of his family, the lunatic’s estate (property), if any, will be liable. There is no personal liability incurred by the lunatic.
  • If a contract entered into by a lunatic or person of unsound mind is for his benefit, it can be enforced (for the benefit) against the other party (Jugal Kishore Cheddu)

FREE CONSENT 
According to Section 14, consent is said to be free when it is not caused by—

  1. coercion, as defined in section 15, or
  2. undue influence, as defined in section 16, or
  3. fraud, as defined in section 17, or
  4. misrepresentation, as defined in section 18, or
  5. mistake, subject to the provisions of sections 20section 21 and section 22.

(a) Coercion
According to Section 15Coercion means

  • the committing or threatening to commit any act forbidden by the Indian Penal Code, or
  • unlawful detaining or threatening to detain, any property to the prejudice of any person whatever

with the intention of causing any person to enter into an agreement.

Note:

  • It has been held that mere threat by one person to another to prosecute him does not amount to coercion.

(b) Undue Influence

According to Section 16(1), a contract is said to be produced by undue influence

  • where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and
  • uses that position to obtain an unfair advantage over the other

According to Section 16(2), a person is deemed to be in a position to dominate the will of another –

  • Where he holds a real or apparent authority over the other or where he stands in a fiduciary relation to the other, e.g., minor and guardian; trustee and beneficiary; solicitor and client. There is, however, no presumption of undue influence in the relation of creditor and debtor, husband and wife (unless the wife is a parda-nishin woman) and landlord and tenant. In these cases the party has to prove that undue influence has been exercised on him, there being no presumption as to existence of undue influence.
  • Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress e.g., doctor and patient.

Defence against presumption of undue influence

Where there is a presumption of undue influence, the presumption can be rebutted by showing that
(i) full disclosure of all material facts was made,
(ii) the consideration was adequate, and
(iii) the weaker party was in receipt of independent legal advice.

In case of lending and borrowing transactions

  • If the rate of interest is very high in a money lending transaction, in general, existence of undue influence shall not be presumed.
  • It has been held that urgent need of money on the part of the borrower does not itself place the lender in a position to dominate his will within the meaning of this Section.

Transactions with parda-nishin woman
A person who contracts with parda-nishin woman has to prove that no undue influence was used and that she had free and independent advice, fully understood the contents of the contract and exercised her free will.

(c) Wilful Misrepresentation or Fraud (Section 17)
Fraud is an untrue statement made knowingly or without belief in its truth or recklessly, carelessly, whether it be true or false with the intent to deceive. The chief ingredients of a fraud are:

  1. a false representation or assertion;
  2. of fact (and not a mere opinion),
  3. made with the intention that it should be acted upon,
  4. the representation must have actually induced the other party to enter into the contract and so deceived him,
  5. the party deceived must thereby be damnified, for there is no fraud without damages, and
  6. the statement must have been made either with the knowledge that it was false or without belief in its truth or recklessly without caring whether it was true or false.

 Note:
Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless silence is in itself equivalent to speech, or where it is the duty of the person keeping silent to speak as in the cases of contracts uberrimae fidei – (contracts requiring utmost good faith)

Contracts Uberrimae Fidei
There are contracts in which the law imposes a special duty to act with the utmost good faith i.e., to disclose all material information. Failure to disclose such information will render the contract voidable at the option of the other party.

Contracts uberrimae fidei are:

(a) Contract of insurance of all kinds
The assured must disclose to the insurer all material facts and whatever he states must be correct and truthful.

(b) Company prospectus
When a company invites the public to subscribe for its shares, it is under statutory obligation to disclose truthfully the various matters set out in the Companies Act. Any person responsible for non-disclosure of any of these matters is liable to damages. Also, the contract to buy shares is voidable where there is a material false statement or non- disclosure in the prospectus.

(c) Contract for the sale of land
The vendor is under a duty to the purchaser to show good title to the land he has contracted to sell.

(d) Contracts of family arrangements
When the members of a family make agreements or arrangements for the settlement of family property, each member of the family must make full disclosure of every material fact within his knowledge.

You are studying this topic at CSEET Video Lectures for Nov 2021 – Legal Aptitude – Law related to Contracts – Class 6

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